Weekly ETF Monitor for week ending 9 August 2019


Aug 13, 2019

This week's highlights Global equities dropped last week as U.S.-China tensions escalated. European markets were also hit by political instability in Italy and slowing industrial activity. Gold mining ETFs (MNRS and GDX) were the top performing equity funds for the week. Asia-Pac ETFs (CETF, CNEW, UBP and IKO) along with domestic strategy ETFs (HVST, FAIR and SYI) were amongst the poorest performers. The precious metal rally continued. Silver (ETPMAG), gold (GOLD, PMGOLD and QAU) and palladium (ETPMPD) were all amongst the week’s best performing funds, along with a precious metal basket ETF (ETPMPM). Total flows into domestically domiciled ETFs were $302m, while outflows totalled $142m. The biggest inflows were into domestic equities (A200, MVW and IOZ) and gold (GOLD). Floating rate cash products (QPON and FLOT) were also popular. Outflows were primarily from broad international equities (IVV, IEU, ESTX and IJP). A200 was the most traded fund last week, ahead of STW and A200. GOLD continued to trade well above its average volume on sustained investor interest. ETFS Physical Gold (GOLD) returned 3.8% for the week and is now up 20.7% year-to-date. Last week gold traded above US$1,500 for the first time since 2013 and continues to hit new all-time highs in A$ terms. With bond yields continuing to fall, currency wars on the horizon and geopolitical tensions on the rise, there is a strong case for holding gold as both a portfolio diversifier and store of value. Globally over US$9bn has flowed into physical gold ETFs so far in 2019.

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Weekly ETF Monitor for week ending 2 August 2019


Aug 06, 2019

This week's highlights Global equities declined last week despite the Fed’s first rate cut since 2008. Infrastructure and property ETFs (VBLD, VAP and MVA) were amongst the top performing equity funds, while Asia-Pac ETFs (IKO, IZZ, UBP and IAA) were the biggest decliners. In precious metal markets gold continued its strong run, while palladium saw a big drop. GOLD and PMGOLD both returned 3.2%, while gold mining ETF (GDX) topped the returns table for equity funds. Palladium fund ETPMPD fell 7.7%. The Australian dollar fell to US 68c. U.S. dollar ETFs (YANK, USD and ZUSD) were all amongst the weeks top performers. Total flows into domestically domiciled ETFs were $339m, while outflows totalled $12m. The biggest inflows were into cash (AAA) and broad-based equity funds (A200 and IVV). GOLD continues to attract strong flows, with over $75m of inflows since the beginning of June. AAA was the most traded fund last week, followed by domestic equity funds (VAS, STW and A200). GOLD traded well above its average volume. ETFS Global Core Infrastructure ETF (CORE) returned 1.2% for the week and is now up 15.1% year-to-date. CORE uses a dynamic, rules-based approach to stock selection, choosing the 75 least volatile infrastructure stocks globally on a quarterly basis.

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Weekly ETF Monitor for week ending 26 July 2019


Jul 30, 2019

This week's highlights Global equities advanced last week as the S&P 500 and Nasdaq 100 hit new all-time highs and the S&P/ASX 200 came close to doing likewise. Cyclical stocks outperformed, with ETFS Morningstar Global Technology ETF (TECH) topping the ETF performance charts. U.S. mid- and small-cap funds (IJH and IJR) and other tech-heavy funds including NDQ, HACK and ROBO followed. Global equity strategy funds including MGE and MOAT also posted strong weeks. Precious metal prices continued to rise ahead of the anticipated Fed rate cut this week. Platinum and silver were the biggest movers. Gold mining ETFs (MNRS and GDX) retreated. The Australian dollar fell below US 70c, driving unhedged ETFs higher. AUDS was the week’s poorest performing ETF, while YANK was amongst the top performers. Total flows into domestically domiciled ETFs were $307m, while outflows totalled $173m. The biggest inflows were into broad based domestic equity funds (A200 and IOZ), cash and fixed income funds (FLOT, QPON and AAA) and gold (GOLD). The largest outflows were from PLUS and STW. AAA was the most traded fund last week, while PLUS, QPON and FLOT all saw above average volumes as cash and fixed income funds dominated volumes. ETFS Morningstar Global Technology ETF (TECH) returned 5.0% for the week and is now up 29.9% year-to-date. Strong earnings from Google and across the semi-conductor industry propelled the sector higher. Morningstar’s moat methodology, which identifies quality companies with high levels of competitive advantage at attractive valuations, is used in TECH’s stock selection process.

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Weekly ETF Monitor for week ending 19 July 2019


Jul 22, 2019

This week's highlights Global equities ended the week lower on ongoing geopolitical risks and mixed economic data. The Australian share market posted a modest gain, with small cap ETFs (SMLL and VSO) outperforming. Oil prices slumped on the prospect of easing U.S.-Iran tensions and demand concerns. OOO declined 7.5% for the week and global energy companies (FUEL) were also impacted. Technology heavy funds including NDQ and CNEW were also amongst the week’s poorest performers. Precious metals benefited from the risk-off sentiment, pushing higher. Spot gold added 0.7%, hitting new 6-year highs, while silver jumped 6.4%. ETPMAG was the week’s top performing ETF, while platinum (ETPMPT), gold (QAU and GOLD) and a basket of four precious metals (ETPMPM) were all amongst the top performers. Gold mining ETFs (MNRS and GDX) benefited, each adding over 6% for the week. Total flows into domestically domiciled ETFs were $199m, while outflows totalled $35m. The biggest inflows were into cash and fixed income funds (AAA, IAF, HBRD, CRED and ISEC). Gold (GOLD) also saw strong flows. The largest outflow was from UBA. STW and AAA were the most traded funds last week, while A200 and VHY saw above average volumes. ETFS Physical Silver (ETPMAG) returned 7.1% for the week and the metal is now trading at US$16.20 per ounce, over 14% above its May low. Silver has lagged gold in recent years, despite growing industrial demand from technology-related industries, with the closely-monitored gold-to-silver price ratio recently touching levels not seen since 1992.

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Weekly ETF Monitor for week ending 12 July 2019


Jul 16, 2019

This week's highlights: Over the week BetaShares Crude Oil Index ETF - Ccy Hedged (OOO) returned 4.7% and BetaShares Commodities Basket ETF - Ccy Hedged (QCB) was up 2.5%. This resembled a strong trend as much of the top performers were hedged commodity products. The worst performers over the week were Robotics and Property ETFs. BetaShares Global Robotics and Artificial Intelligence ETF (RBTZ) ended the week down 3.5% and ETFS ROBO Global Robotics and Automation ETF (ROBO) was down 3.2%. YTD performance remains best among geared Australian and U.S. Equity funds with the worst performers conversely the Australian and U.S. bear funds. The best performers over the previous twelve months are ETFS Physical Palladium (ETPMPD) up 74.2% and VanEck Vectors Australian Property ETF (MVA) up 30.1%. Inflows for the week totalled $258 Million and outflows $107 Million. Notably SPDR S&P/ASX 200 Fund (STW) had outflows of $81.9 Million and BetaShares Australia 200 ETF (A200) had inflows of $60.5 Million. Cash, Bond and Gold ETFs also saw a steady inflows.

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Five reasons to consider an investment in TECH now


Jul 23, 2018

ETFS Trade idea:  Five reasons to consider an investment in TECH now In this week’s ETFS Trade idea we focus on the ETFS Morningstar Global Technology ETF (TECH) and look at five reasons why you might want to consider an investment in technology in the current market. High level observations: Technology stocks have continued their strong run in 2018Technology firms may be more resilient to a global trade war TECH includes valuation and quality features that may alleviate concerns of some investors Investors considering the technology sector should look at TECH The sector has proven to be robust in changing market conditions over recent years

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US Defensive Equities Starting to Look Well Valued


Jul 02, 2018

ETFS Trade idea:  US Defensive Equities Starting to Look Well Valued ETFS S&P 500 High Yield Low Volatility ETF ASX Code: ZYUS U.S. market has been high growth since Trump’s election This cycle looks like it may be turning Investors wanting to retain U.S. exposure but remove the high growth/high volatility companies should look at ZYUS In this week’s ETFS Trade idea, we look at opportunities in defensive U.S. equities and show how it may be a good entry point for ZYUS, which under performed the broader market in 2017, but has picked-up in recent months and had standout performance in 2016. ZYUS tracks the S&P 500 Low Volatility High Dividend Index, which selects a portfolio of the lowest volatility stocks from amongst the highest yielding names in the S&P 500. The story in 2017 - defensives appeared to be out of favour For most of 2017 the U.S. economy was in expansionary territory with GDP growth rising above 4%, the S&P 500 returning 22%, volatility remaining persistently low and normalisation of monetary policy accelerating. Information technology stocks dominated, returning 39%, but other traditional growth sectors also outperformed. Materials, consumer discretionary and financials all beat the benchmark. Defensive sectors, which traditionally include utilities, consumer staples, health care and real estate, on the other hand, suffered on two fronts. Firstly, the economic conditions of a growing economy and rising interest rates were not conducive to above-market performance in sectors such as utilities, consumer staples and telecommunications. Secondly, many companies in these sectors had become over-bought and over-valued in the post-crisis scramble for stable returns and yield, where low volatility and equity-yield strategies gained significant popularity. With rates rising and bonds starting to look more attractive, asset allocations shifted causing under-performance in defensives in 2017 and into early 2018. What has happened so far in 2018? 2018-to-date has seen the U.S. move further into expansionary territory, with GDP growth now sitting at 4.7% and the Federal Reserve having raised rates twice so far. However, signs of the expansionary cycle moving into a later phase have started to appear in recent months. Long-term bond yields have stabilised, inflation has picked-up and the S&P 500 has returned only 2.6% year-to-date. In addition, through a combination of geo-political and economic events, volatility has returned, with the VIX peaking at 37.3 in February and averaging 16.3 in 2018 compared to a maximum of 16.0 and an average of 11.1 for the whole of 2017. Defensives are currently looking more attractive on a valuations basis than at any time in recent years. On a relative-PE basis, utilities, consumer staples, telecommunications and health care sectors are all currently trading at lower multiples than the S&P 500. Even if the bull market still has further to run, now could be a good opportunity to re-allocate back towards defensive sectors. While the economy is not yet showing any signs of slowing, if you believe the U.S. is currently in a late-cycle boom, then it may be prudent to prepare for a sell-off in risky-assets. How does ZYUS’s sector allocation look? As can be seen in Chart 1, ZYUS is currently most overweight real estate and utilities along with smaller over-allocations to consumer staples, energy and telecoms. Information technology, health care and financials are the biggest under-weights. Overall, relative to the S&P 500, ZYUS is 34% overweight to the traditional defensive sectors, despite being 10% underweight health care, which is no longer considered to be as defensive as it once was. How has ZYUS performed relative to the S&P 500? In 2017 ZYUS underperformed the S&P 500 by nearly 9.6% as technology stocks accelerated away. This continued into early 2018 with ZYUS under-performing heavily in both January and February as the sell-off in defensives picked-up pace. This contrasts with 2016, where ZYUS outperformed by 8.8% . Monthly performance differentials are shown in Chart 3, below. Since the end of February, however, ZYUS has outperformed in three of the four months and added 4.7% to the S&P 500 on an AUD total return basis. Volatility-wise, on a 90-day historic basis, the spread between the S&P 500 and the S&P 500 Low Volatility High Dividend Index is currently at its lowest since 2012, as shown in Chart 3. Recently the low volatility screening is providing a degree of risk-reduction even in a more concentrated, 50-stock portfolio. On a yield basis, the S&P 500 Low Volatility High Dividend Index is currently yielding 4.3%, which is more than double the yield on the S&P 500 at 1.9%. Lastly, it is worth recalling that, despite the recent under performance, the low volatility/high dividend strategy has outperformed the S&P 500 by over 6% pa since the beginning of 2000, which demonstrates its ability to outperform across cycles. How ZYUS invests ETFS S&P 500 High Yield Low Volatility ETF (ZYUS) follows a rules-based strategy, tracking its benchmark Index, and has the following features: ZYUS captures the performance of a selection of the high yielding companies from the S&P 500 Index and aims to provide stable returns with regular income. ZYUS selects the 50 lowest volatility names from a list of the 75 highest yielding stocks at each rebalance. ZYUS is rebalanced semi-annually in January and July. ZYUS is weighted in proportion to the dividend yield of each constituent, meaning that the stocks with the highest yields receive the highest weightings. ZYUS applies individual stock and sector caps to ensure diversification. ZYUS has an MER of 0.35% p.a. ZYUS has a Recommended rating by Lonsec. Summary While low volatility and defensive sector strategies have underperformed over the past 12 to 18 months, with the U.S. possibly moving towards the latter stages of the current economic cycle, it could be a good time to revisit these strategies. ZYUS provides a generally more defensive sector allocation than the broader market, uses a low-volatility screening and produces a consistently higher yield.

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ETF Volatility - Truths and Misconceptions


May 31, 2018

ETFSTrade idea:  ETF Volatility - Truths and Misconceptions In this week’s ETFS Trade idea, we look at the misconceptions around ETFs causing volatility and explain why these are myths. High level observations: ETFs have been unfairly targeted as the cause of market volatility ETFs tracking the ASX 200 have successfully stayed in line with the volatility of the benchmark ETFs can cause movements in the underlying market but so do active funds and investors buying securities directly In nearly all cases ETFs match the volatility of the market they track and this is what should be expected from an index tracking fund

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Conflicting signals in the U.S. - Time for caution?


Apr 22, 2018

ETFSTrade idea – Conflicting signals in the U.S. - Time for caution? ETFS S&P 500 High Yield Low Volatility ETF (ZYUS) ETFS Physical U.S. Dollar ETF (ZUSD) The U.S. economy continues to surprise to the upside with markets rebounding strongly. Yet rising inflation, subdued long-term rates and geo-political risks remain a concern. For a defensive U.S. equity exposure, investors should consider ZYUS. Avoiding equity-risk and looking for currency? Consider ZUSD. In this week’s ETFS Trade idea, we look at the outlook in the U.S. for monetary policy, the economy and the dollar. We highlight two funds that can be used in different ways to play the U.S. story; ZYUS and ZUSD. Rate rises on the horizon… Market expectations for multiple rate rises from the U.S. Federal Reserve in the remainder of 2018 have firmed in recent weeks. The economy is still in expansionary territory, though inflationary concerns are becoming more pertinent. US Core CPI rose to 2.1% in March, its highest level in over a year, while March PPI numbers also exceeded expectations. The Fed Beige Book reported strong economic activity, but showed significant business concerns around Trump’s planned steel and aluminium tariffs. Figure 1 below shows the current probabilities the futures market is implying for Fed activity for the remainder of 2018, with two further hikes narrowly the most likely outcome. ...but longer-term growth concerns are becoming more pronounced. While short-term yields have been rising, the yield curve has seen a substantial flattening, with the difference between 2-year and 10-year Treasury yields at their lowest since late-2007 (see Figure 2). Speculation of a curve inversion is starting to emerge. Historically this would indicate that the peak of the current rate cycle is approaching and present a subdued outlook for growth. U.S. dollar weakness continues… Despite rising short-term rates, the U.S. dollar has been in a steady down-trend since early 2017, as shown in Figure 2. This can be partly attributed to President Trump’s rhetoric regarding trade and towards China, but also to a gradual unwinding of GFC-era flight-to-safety trades. …but political risks could be a catalyst With the impositions of tariffs and a potential trade with China, military action in Syria, sanctions against Russia and talks with North Korea on the horizon and February’s equity market volatility still fresh in the memory, there is no shortage of event risk candidates looming. With external events and any evidence of longer-term U.S. economic strength both likely to have a positive impact on the dollar, it appears that near-term risks may lie to the upside. Why ZYUS? ZYUS invests in U.S. stocks from the S&P 500 screened for both high yield and low volatility. As such, the fund tends to be overweight defensive sectors like utilities and real estate and underweight more volatile sectors like technology and financials. The S&P 500 Low Volatility High Dividend Index, which ZYUS tracks, has outperformed the S&P 500 by over 3.6% per annum over the past 10 years and has outperformed on a monthly-basis in over 70% of months during which the S&P 500 has posted a negative return. After underperforming the S&P 500 by over 9.5% in 2017, mainly due to its underweight to technology, ZYUS has recently picked up. Outperformance in March 2018 was over 3% as volatility hit the tech sector and risk-aversion appeared. ZYUS should be considered by investors wanting to maintain U.S. equity exposure, but take a more cautious view on growth and the landscape ahead. Why ZUSD? Investors looking for pure exposure to the U.S. dollar strengthening against the Australian dollar without taking on any equity risk may consider ZUSD, which tracks the exchange rate by investing in short-term USD deposits. How ZYUS invests ETFS S&P 500 High Yield Low Volatility ETF (ZYUS) is well positioned for investors for the following reasons: ZYUS captures the performance of a selection of 50 high yielding U.S shares selected from the S&P 500 Index and rebalanced twice annually. ZYUS initially screens stocks based on dividend yield, reducing the 500 stocks down to 75. ZYUS then selects the 50 stocks with the lowest volatility for inclusion and weights them according to their dividend yield. ZYUS has an MER of 0.35% p.a. ZYUS has a Recommended rating by Lonsec. How ZUSD invests ETFS Physical U.S. Dollar ETF (ZUSD) is well positioned for investors for the following reasons: ZUSD captures the performance of the U.S. dollar against the Australian dollar, by investing all of its assets in U.S. dollar bank deposits. ZUSD currently holds overnight USD deposits with Australia and New Zealand Banking Group Limited (ANZ), earning interest at 1.30% p.a. ZUSD has an MER of 0.30% p.a., making it the lowest cost U.S. dollar exposure available on the ASX. ZUSD has a Recommended rating by Lonsec.

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The Aussie yield ETF that challenges active managers


Apr 09, 2018

ETFS Trade idea – The Aussie yield ETF that challenges active managers ETFS S&P/ASX 300 High Yield Plus ETF (ZYAU) In the wake of S&P Dow Jones Indices recently published SPIVA® report, this week we have taken a look at how our ETFs have fared against active managers over time. This note highlights ZYAU, which has produced strong excess returns since inception and outperformed many well-known active managers. Investors looking for cost-effective excess returns from domestic equities should consider evaluating ZYAU. In this week’s ETFS Trade idea, we look at the results of the SPIVA® Australia Scorecard released by S&P Dow Jones Indices last month and compare the performance of ZYAU to a collection of well-known active funds focused on Australian equity-income. SPVIA® Australia Scorecard 2017 S&P Dow Jones Indices have been publishing SPIVA® Scorecards for major markets since 2002 and have become leading contributors to the active versus passive debate worldwide. The SPIVA® Scorecards track the performance of active fund managers in each market against benchmark indices across a variety of categories and across multiple time horizons. Looking specifically at Australian large-cap equity funds, as at the end of 2017 59% of funds underperformed the S&P/ASX 200 Index. Over 3, 5 and 15 year periods, respectively, 67%, 63% and 77% of funds underperformed the national benchmark. An equally-weighted portfolio of active funds would have underperformed the benchmark over 1, 3, 5, 10 and 15 years. Similarly, in the mid and small-cap categories, 74% and 75% of funds underperformed the S&P/ASX Mid-Small Index over 1 and 3 years. How does ZYAU compare to active funds? ZYAU sits in-between a traditional active fund and a purely passive index tracker in the area commonly termed ‘smart-beta’ or ‘enhanced-alpha’. Smart-beta funds passively track an index, but the index they track has features that differentiate it from a standard market capitalisation-weighted index and aim to outperform a standard index in much the same way that active funds do. In the case of ZYAU, it tracks the S&P/ASX 300 Shareholder Yield Index, which aims to outperform the S&P/ASX 300 benchmark by selecting a sub-set of constituents based on ‘shareholder yield’ – a combined measure of dividend yield and buy-back yield. Because ZYAU’s investment strategy is pre-defined it has several potential advantages over active funds: its strategy is consistent, published and available for investors to evaluate and scrutinise its holdings are published in the public domain on a daily basis because it trades on exchange, investors can trade intra-day, unlike with many active funds because the fund does not require a team of fund managers to continually evaluate its holdings, it can charge management fees more in-line with passive index trackers. ZYAU’s stocks selections tend to be more “active” than many active funds, with its Active Share, or non-overlapping weight, versus the S&P/ASX 200 currently at 80.5%. This means that ZYAU can better compliment a core index holding in a portfolio. Table 2, below, shows comparative performances and headline management fees of ZYAU against a collection of well-known active funds that focus on Australian equity and equity income. Low Cost Firstly, to note, ZYAU’s management fee compares favourably to the active funds, as would be expected. ZYAU charges a fee of 0.35% p.a., which is below all of the active funds profiled and significantly below the average active MER of 0.83% p.a. Consistent Strong Performance With regards to performance, since its inception in June 2015, ZYAU has generated 2.19% p.a. excess return over the S&P/ASX 200, which puts it ahead of 16 of the 17 active funds. Only Bennelong Australian Equities Fund has outperformed, due to a very strong start to 2018. In the calendar year 2017, ZYAU outperformed the S&P/ASX 200 by 0.63% and beat 14 of its 17 active peers. In 2016, ZYAU outperformed 16 of the 17 active funds profiled and produced 5.42% of excess return over the benchmark index. Since inception, ZYAU has delivered strong performance at a fraction of the cost of many of its active peers and should be, therefore, considered by investors looking for cost-effective excess returns. How ZYAU invests ETFS S&P/ASX 300 High Yield Plus ETF (ZYAU) is well positioned for investors for the following reasons: ZYAU captures the performance of a selection of 40 high yielding Australian shares selected from the S&P/ASX 300 Index and rebalanced twice annually. ZYAU initially screens stocks based on liquidity, free cash flow to equity and dividend growth rates. This excludes stocks that are illiquid, are returning more cash to shareholders than they are earning, or have recently cut their dividend payouts. ZYAU then selects the 40 stocks with the highest shareholder yields for inclusion and weights them according to a mix of shareholder yield and market capitalisation. ZYAU has an MER of 0.35% p.a. ZYAU has a Recommended rating by Lonsec.

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